Allow myself to introduce myself

Happy Friday!

Yes, I’ve been talking about inflation since April of last year, and yes, we’ve seen quite a bit since then. But there’s more coming. At least I think so.

But inflation isn’t a bad thing. Much like rising interest rates, it’s a sign that the economy is growing (I’ll take inflation any day of the week and twice on Sunday versus deflation). Inflation only becomes a potential problem when it keeps rising/accelerating after we achieve full employment. I’d wager we are two years away from that happening, but it’s definitely something we need to watch closely.

Few things this week worth discussing…

To start, fourteen words from this point in this sentence is the last time I will be using the word “stimulus.” This word is no longer in my vocabulary, nor should it be in Congress’s, because it has no more meaning. It used to signify helping people and businesses in need, but it has now morphed into making it rain. I’m actually shocked that they didn’t attach sparklers to the recent spending bill and parade it out in front of the press, as if someone just bought a Nebuchadnezzar of Cristal at the top table at LIV. 

That being said, the $1.9 trillion government spending package is reportedly about to get dwarfed by a $3 trillion government spending package for infrastructure. Hopefully you know my thoughts on infrastructure spending by now. I’ve only advocated this for like 12 years. But I can’t get too excited given the amount of spending already on the docket, and it appears that a lot of other investors feel the same way.

However, I’m very skeptical this will get through Congress. This is a blue ripple, not a blue wave, and to get all moderate Democrats on board is going to be tough. Also, the dems can only use the budget reconciliation process so many times. If they run out, there’s zero chance they get 60+ votes out of the Senate.

Second, there’s an excellent post from Nick Magguilli at Ritholtz Wealth Management about what’s happened since the bottom of the crisis last year (one year ago this week). He points out that if you had bought the S&P 500 on March 23, 2020, you would now be up by 76% (excluding dividends). 

I love this chart below that shows just how much of an outlier returns like that are: 

Since 1915, there have only been two periods that had higher returns over the prior year (both during the great depression). So yeah, what we just saw was a once in a generation, maybe once in a lifetime buying opportunity. 

As a result, there are a lot of traders and investors walking around right now feeling like a genius because investing has been so easy lately (recency bias). Well, one thing I’ve learned, and alluded to in my piece last week, is that the millisecond you feel confident in this business, you immediately run the risk of getting your face ripped off. Confidence is the absolute worst trait to have in investing. 

Go back and look at the chart above one more time, and let this serve as a reminder that what happened over the last year probably won’t happen again for a while. As I’ve said many times already, the future holds opportunity for patient investors, but the ride isn’t going to be fun because it never is. This recent volatility spike was the first test, and there will be many more.

Lastly, without question the funniest story of the week was this ship getting stuck in the Suez Canal (and no not just because of the route it took). Check out the size of the ship. It’s like 4 football fields long. I have no idea how they are going to dislodge it, but since this comfortably falls into my NMFP pile (Not My F’ing Problem), I plan to just sit back and laugh.

But seriously, this is a real problem. The Suez sees 12% of all global trade pass through it. That’s $400 million in goods every hour and $10 billion every day!

I can’t wait to read the summary report after the investigation into how this happened. Hopefully, the authors will seize the opportunity and use this photo for the cover page:

Enjoy the weekend…